After the unprecedented electoral victory of Donald Trump, the political climate in the U.S. has been in a state of flux. As the president fills in cabinet and department positions, enacts his agenda and navigates the tumultuous waters of the current political climate, the commercial building industry awaits Washington’s concrete actions and their wide-ranging impacts.
With Republicans holding both houses of Congress and the White House, budget cuts, tax cuts and deregulation are likely on the way. While some of these actions might help businesses, these actions will also have consequences for the buildings industry in the coming weeks, months and years. How will the current political situation affect you?
Information Sharing for Energy Efficiency
Michigan State University had a plan to boost its energy efficiency across the board but was in need of more information and strategies to enact changes across its portfolio of academic buildings, science facilities, parking ramps and athletic facilities. The Department of Energy’s voluntary energy program, the Better Buildings Challenge, provided these vital resources, even though it did not offer any financial incentives.
“We have saved close to $10 million over the past few years by installing energy-efficient measures across campus. We have reduced the energy footprint by 13% in the 20 million square feet included in the program,” says Lynda Boomer, Director of Planning Design and Construction at MSU.
Learning from similar universities that had undergone comparable projects, MSU found success in its energy-saving initiative. The information sharing partnership of the Better Buildings Challenge helped MSU enact HVAC upgrades, chiller replacements and insulation improvements for optimal efficiency.
Through the Better Buildings Challenge, partners commit to improve the energy use of their building portfolios by at least 20% within 10 years and lead the way in a network for peer-to-peer collaboration,” says Maria Vargas, Director of the Better Buildings Challenge. “By showing how energy efficiency has been successfully adopted – and the barriers addressed and overcome – these partners are examples for others across a myriad of building types and locations.”
Since joining the initiative, MSU has been able to achieve considerable savings in its facilities, and the program has been successful across the board in reducing energy usage in buildings.
“MSU became aware of the Better Buildings Challenge and Alliance through involvement in the International Institute for Safe Laboratories (I2SL). We had just completed the energy transition plan and were already on the path to reducing energy use on campus and becoming more efficient, so it was a good fit to join the Better Buildings Challenge,” says Boomer. “While they did not provide any financial aid, the program gave MSU an opportunity to network with other universities and suppliers that could provide ideas and opportunities for energy saving projects.”
In practice, the Better Buildings Challenge has been successful in helping participants reach that 20% goal. “Partners have saved 240 trillion BTUs in energy consumption, $1.9 billion in cost savings, 15 million tons in avoided carbon emissions, $8.6 billion in funds extended by financial allies partnering with DOE and 4 billion gallons in water savings,” says Vargas.
Initiatives that the voluntary Better Buildings Challenge has started include the Financing Navigator to help people find financing options, greater focus and research on data center energy use, water efficiency pledges that save both water and energy, and the SWAP, a reality TV-inspired web series in which property managers from two organizations look for savings opportunities in each other’s buildings.
The voluntary nature of the project allows organizations to earn recognition and share energy information with other participants, which can provide the spark for worthwhile changes. However, the future of the Better Buildings Challenge is in jeopardy due to a recent executive order and the future federal budget.
The Trump Trajectory
President Trump has targeted several Obama-era policies that directly relate to the buildings industry through executive actions and legislative proposals. One needs to look no further than the Better Buildings Challenge, which former President Obama introduced in his 2011 State of the Union address as a means to reduce greenhouse gas emissions. In his 2013 Climate Action Plan, Obama’s agenda included expanding the Better Buildings Challenge.
However, the Trump administration has taken aim at Obama’s Climate Action Plan with the Presidential Executive Order on Promoting Energy Independence and Economic Growth, identifying goals of striking down energy-related regulations that executive departments have mandated in the past. This executive order could threaten the future of the Better Buildings Challenge, although it is not yet clear how or to what extent.
Executive orders have some historical precedent of being more symbolic, guiding the vision and overall policy of a presidency. Whether or not this particular executive order will on its own largely impact Obama’s Climate Action Plan is unclear at this point. But what an executive order may or may not be able to accomplish can be done so through legislation.
The budget proposal Trump will expand and hopes to usher through Congress provides more concrete plans for cuts within several departments that house energy efficiency programs. While this budget proposal will undoubtedly undergo major changes to placate the many factions of the House, the original budget presented provides insight into the trajectory this administration would like to follow as far as federal funding goes.
Two of the most important departments to look at with the budget proposal are the Department of Energy and the Environmental Protection Agency, both of which would face cuts in 2018.
The DOE’s proposed cuts seem small compared to other departments with 6% or $1.7 billion in cuts having been proposed to its 2017 allocation. However, under this prospective budget, the National Nuclear Security Administration would receive a $1.4 billion boost, meaning cuts to other programs in the department – ones that might impact building operators – compound under this budget.
One of the hardest-hit agencies under the proposed budget cuts is the EPA; the agency’s overall budget would shrink by 31% or $2.6 billion. Stating a desire to cut back on regulations that hinder businesses, the president set his sights on cutting one particular program in the EPA: ENERGY STAR.
ENERGY STAR on the Chopping Block
As the old maxim goes, “If you can’t measure it, you can’t manage it.” That could be a major problem for facility managers, as the program that provides the most resolute benchmarking standard and system in the U.S. is in serious jeopardy of being cut entirely. Despite its status as one of the most popular government programs that has few political foes, the Trump administration has targeted ENERGY STAR, the labeling, certification and benchmarking program, to be cut. While the program appears to be safe for the near future, the program is far less secure past September.
“For FY 2017, major programs that help support private sector commercial buildings with sustainability such as ENERGY STAR will not be directly affected. But based on the programs that the ‘skinny budget’ targets for elimination, there are important questions about whether that might occur in FY 2018,” says Liz Beardsley, Senior Policy Counsel at USGBC.
There seems to be a fair amount of optimism that ENERGY STAR might survive these cuts, but its specific inclusion in Trump’s budget proposal causes some concern. Those with optimism for ENERGY STAR’s survival cite its lack of enemies in Washington; members of both parties have recognized its positive economic impact.
“I’m not predicting that it’s going to be cut, but Trump specifically calling it out gives that a better chance of happening,” says John Bryant, Vice President of Advocacy, Codes and Standards at BOMA International. “When you’re looking at significant reductions to an agency, that could mean anything. But he specifically calls out certain programs that he thinks should be eliminated. We were surprised that this was something that he would call out, being someone who is familiar with real estate deals and operations. ENERGY STAR doesn’t have many enemies.”
However, if Congress enacts these proposed cuts, the void left from ENERGY STAR would have significant consequences. Beyond the changes that would occur on the manufacturing side of the industry with its popular labeling program, energy benchmarking in buildings would face a number of roadblocks.
Forecasting the Future of Benchmarking
ENERGY STAR’s Portfolio Manager has been the most widely accepted means to achieve benchmarking in the U.S. “Beyond that,” Beardsley notes, “commercial buildings use ENERGY STAR for their own business purposes to gain a market advantage. It’s been a very important program for the whole market because it provides this common language of information about the energy consumption of a building.”
There has been discussion about possible private entities taking on the responsibilities of ENERGY STAR if the program is cut, but the logistics of this are abstract and the likelihood that the new version would work in a similar fashion is low. Because the program has been free for building operators to use, the fees and other factors that would no doubt arise under a private sector entity would pose critical questions, according to Beardsley.
“ENERGY STAR Portfolio Manager is used to gather data from 40% of buildings nationwide, which is the equivalent of 40 billion square feet and counting, so if you get rid of it, you have to come up with a new standard and have each building integrate with a new system,” says Wei-En Tan, Vice President of Market Strategy at MACH Energy, an energy management software provider based in Oakland, CA. “It would take so much work and money to put in a new standard. ENERGY STAR isn’t perfect, but it’s the best energy standard that we have right now.”
If ENERGY STAR can’t be replicated in the private sector – especially for Portfolio Manager – benchmarking could become considerably more difficult. Outside of ENERGY STAR, there aren’t many benchmarking standards, and the ones that do exist are often inadequate outside of one particular region.
“The future of benchmarking without ENERGY STAR is pretty grim,” Tan explains. “We're aware of efforts in various cities currently working on their own benchmarking standards, but they are in very early stages and meant to complement ENERGY STAR – not to replace it.”
With hopes to save ENERGY STAR, MACH Energy has signed a joint letter with hundreds of other companies to show their support for the program, joining a coalition called the Alliance to Save Energy, which is comprised of companies that work in the buildings industry and believe in the value of ENERGY STAR. Along with several other organizations vying for the program’s survival, the coalition hopes that lawmakers can focus on the benefits the program has for businesses rather than the often contentious environmental arguments that are levied.
“Regardless of politics, it’s really beneficial. We’re hoping it can become a non-partisan economic issue and less of an environmental issue,” says Tan.
Attention to Tax Reform
While nothing can be certain except for death and taxes, tax reform is an entirely different story. Beyond the more obvious impressions a new tax code could have on organizations, successful tax reform might bring back a key tax incentive for energy efficiency improvements to buildings.
The 179D commercial buildings energy efficiency tax deduction allowed building owners to deduct up to $1.80 per square foot, benefiting facility managers looking to install interior lighting, envelope or HVAC systems that cut the building’s energy costs by 50% between all three systems. Partial qualification for one or two systems was available at 60¢ per square foot for each. However, the deduction expired and has yet to be reinstated.
“The problem with 179D is that it expired at the end of 2016,” says Bryant. “Previously it was included in what’s normally referred to as ‘tax extenders,’ which are tax programs that are expensive over the long term, so rather than making them part of the permanent tax code, they’ll only extend them for a year or two to get them through Congress.”
While it isn’t uncommon for tax extenders to be reinstated after their expirations, it might not be as easy for 179D to come back quickly. According to Beardsley, upcoming tax reform might look to reduce specialized tax reductions and credits. Moreover, even though bringing the deduction back theoretically wouldn’t be difficult since it has been done before, this will be part of the broader tax reform conversation.
“We’ve always been under the assumption that 179D was going to move forward. The problem that we have with tax reform is that it’s taken the oxygen out of the room,” says Bryant. “Typically during the time of year when tax extenders have expired, Congress will retroactively extend them – when members of Congress and lobbyists are talking about the importance of using individual provisions. Those conversations aren’t taking place because everyone is thinking about the broader picture of what’s going to happen with tax reform.”
The concern then with this tax incentive is that if it is not extended soon enough, it could disappear. For those hoping for further financial incentives for energy efficiency upgrades, resolving 179D more quickly is the ultimate goal. If this doesn’t happen, the future is far more uncertain for the deduction’s long-term viability.
“There have been various times where 179D has expired and put in place retroactively in some cases, but that’s not ideal because you want to send the signal to the market that the deduction is going to be available and reliable so they can plan and execute projects,” Beardsley explains. “Any time there is a risk of expiration – or an actual expiration, even if it’s reinstated – is not ideal for this kind of program, but even where late or after the fact, continuation has still been helpful in incentivizing these activities. There are several policy considerations – including job creation – that underlie the 179D deduction.”
While it is unclear how the current political climate will affect the buildings industry, areas that will carry the most weight are coming into focus. For many of these issues, their successes or failures will depend on the momentum of larger areas of interest like the budget and tax reform.
“We’ve completed the first 100 days of this new Congress and administration, but we haven’t seen a lot actually move. That could be good or bad depending on your perspective,” says Bryant. “We haven’t seen this Congress or this president really be able to effectively legislate. You’ve seen a lot of executive orders, but you haven’t really seen anything go across the president’s desk for his signature.”
Ultimately, the future of programs like Better Buildings, ENERGY STAR and the 179D tax deduction are very much at the mercy of other policies. Follow progress on the FY 2018 budget and tax reform in the coming months. How legislators move on these critical parts of the agenda will have direct consequences – good or bad – for the commercial building industry.
Justin Feit [email protected] is Assistant Editor of BUILDINGS.
Protecting FMs to Fix ADA Violations
“What we’ve seen in the last couple of years is a handful of attorneys in a couple different states that are using the ADA as a way of shaking down some of our members,” says John Bryant, Vice President of Advocacy, Codes and Standards at BOMA International.
Often referred to as “drive-by lawsuits,” some buildings have found themselves the center of legal action after an often highly technical accessibility violation is discovered. Facilities have received letters from attorneys threatening lawsuits or settlements at a certain cost, even if the facility manager was unaware of the violation. Ideally, BOMA would like to see Congress protect building owners from these kinds of lawsuits, giving owners a “notice and cure” period to allow them to make the proper changes.
“We’re trying to stop those shakedowns from happening, and we want a buffer period where if someone says there is an ADA violation in your building, you have time to actually correct that violation before someone can threaten to sue you,” says Bryant. “We’re not trying to change the standards, lessen them or make it harder for people to come into a building, we want to be able to correct violations and improve accessibility.”
It’s unclear when lawmakers will get to this particular issue; this is likely dependent on whether Congress can push through major legislation in the coming months.
“We’re in the early stages,” says Bryant. “Once we get past healthcare reform, tax reform and infrastructure, things will open up a little. I don’t think it’s going to be a top priority for this Congress or administration. Once you get past the bigger picture issues, we’re hoping that this one can fall into the common sense camp.”